1 Introduction and Important Definitions

Transcription

1 Star Rating On the basis of Maximum marks from a chapter On the basis of Questions included every year from a chapter On the basis of Compulsory questions from a chapter Nil j Nil 1 Introduction and Important Definitions This Chapter Includes: Income Tax; Income [Section 2(24)]; Agricultural Income [Section 2(1A)]; Person [Section 2(31)], Assessee; Assessment; Assessment Year [Section 2(9)]; Previous Year (Section 3); Company, Indian Company and Principal Office; Residence and Tax Liability (Section 6); Test of Residence for Individuals; Tests of Residence for Hindu Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions 3.1

2 3.2 O Solved Scanner CS Executive Programme M-I Paper 3 CS Executive Programme (Module I) OBJECTIVE QUESTIONS Dec [1] {C} (a) Choose the most appropriate answer from the given options in respect of the following: (vi) Any rent or revenue derived from land may be treated as agricultural income if! (a) It is derived from land (b) The land is situated in India (c) The land is used for agricultural purpose (d) All the above conditions are satisfied. (viii) The incidence of taxation depends on the! (a) Residential status of the assessee (b) Accommodation of the assessee (c) Citizenship of the assessee (d) Marital status of the assessee. (1 mark each) (vi) (d) (viii) (a) Dec [2] (a) Re-write the following sentences after filling-up the blank spaces with appropriate word(s)/figure(s): (ii) Income accrued and received outside India is taxable in case of a. (ii) Resident and Ordinarily resident Dec [2] (b) State, with reasons in brief, whether the following statements are correct or incorrect: (i) Sandeep, a trader, purchases standing crops and sells it after harvesting. His income will be treated as agricultural income. (2 marks) (i) The statement is incorrect. For an income to be treated as Agricultural income, basic and subsequent operations of agriculturist which include cultivation of the ground, sowing of the seeds, weeding, digging etc. have to be there. In this case, Sandeep, is purchasing ready crops, hence his income will not be treated as agricultural income.

3 [Chapter # 1] Introduction and Important Definitions O June [1] {C} (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (i) Income of a business commenced on 1st March, 2014 will be assessed during the assessment year.. (i) Dec [1] {C} (a) Choose the most appropriate answer from the given options in respect of the following having regard to the provisions of the relevant direct tax laws : (i) Income-tax in India is charged at the rate(s) prescribed by (a) The Finance Act (b) The Income-tax Act (c) The Central Board of Direct Taxes (d) The Ministry of Finance. (i) (a) The Finance Act June [1] {C} (a) Choose the most appropriate answer from the given options in respect of the following having regard to the provisions of the relevant direct tax laws: (i) Which of the following income is agricultural income (a) Rent received from agricultural land (b) Income from dairy farm (c) Income from poultry farm (d) Dividend from a company engaged in agriculture. (ii) The term income includes the following types of incomes (a) Legal (b) Illegal (c) Legal and illegal both (d) None of the above. (iii) Every year, the residential status of an assessee (a) May change (b) Will certainly change (c) Will not change (d) None of the above. (1 mark each) (i) (a) Rent received from agricultural land (ii) (c) Legal and illegal both (iii) (a) May Change

4 3.4 O Solved Scanner CS Executive Programme M-I Paper June [1] {C} (b) State, with reasons in brief, whether the following statements are correct or incorrect: (i) An Indian company is always resident in India no matter where and to what extent its control and management is situated. (i) Correct Dec [1] {C} (a) Choose the most appropriate answer from the given options in respect of the following having regard to the provisions of the relevant direct tax laws: (i) Income accruing from agriculture in a foreign country is taxable in the case of an assessee who is (a) Resident (b) Not-ordinarily resident (c) Non-resident (d) None of the above. (ii) Foreign income received in India during the previous year is taxable in the case of (a) Resident (b) Not-ordinarily resident (c) Non-resident (d) All of the above. (1 mark each) (i) (a) Resident (ii) (d) All of the above Dec [2] (a) State, with reasons in brief, whether the following statements are true of false: (i) An income derived from land situated in India is agricultural income. (2 marks) (i) False: Income derived from land situated in India and used for agricultural purpose is an agricultural income June [1] {C} (a) Write the most appropriate answer from the given options in respect of following having regard to the provisions of the relevant direct tax laws: (iv) Which of the following income is an agricultural income (a) Income from brick making (b) Income from agriculture land situated in Pakistan (c) Prize from government on account of higher crop yield (d) Compensation received from insurance company on account of loss of crop (d) Compensation received from insurance company on account of loss of crop

5 [Chapter # 1] Introduction and Important Definitions O Dec [1] {C} (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (i) The residential status of an assessee is determined for the relevant. (i) Previous Year Dec [2] (a) State, with reasons in brief, whether the following statements are true or false: (i) Prize given to Suresh by the Government of Madhya Pradesh on account of higher crop yield is an agricultural income. (iii) Sandeep Ltd. is a company registered in Japan. The control and management of its affairs is wholly situated in India. Sandeep Ltd. is non-resident company in India. (2 marks each) (i) False: Prize given to Mr.Suresh is not an agricultural Income for him. Since, the price is not related to basic as well as subsequent operation on land. However, it will be included under the income from other sources (iii) False: As the control and management of affairs of Sandeep Ltd. is wholly situated in India therefore Sandeep Ltd. is a resident company in India June [1] {C} (a) Write the most appropriate answer from the given options in respect of the following having regard to the provisions of the relevant direct tax laws: (ii) Income earned and received outside India but later on remitted to India, is taxable in the case of (a) All the assessees (b) Resident and ordinarily resident in India (c) Non-resident (d) None of the above. (d) None of above Dec [1] {C} (a) Write the most appropriate answer from the given options in respect of the following having regard to the provisions of the relevant direct tax laws: (ii) Which of the following may be a not ordinarily resident in India (a) Partnership firm (b) Joint stock company (c) Association of persons (d) Hindu Undivided Family. (ii) (d) Hindu Undivided Family

6 3.6 O Solved Scanner CS Executive Programme M-I Paper June [1] {C} (a) Write the most appropriate answer from the given options in respect of the following having regard to the provisions of the relevant direct tax laws: (iv) Total income of a person is determined on the basis of his (a) Residential status in India (b) Citizenship in India (c) Both (a) and (b) above (d) None of the above. Answer : (iv) (a) Residential status in India June [2] (a) State, with reasons in brief, whether the following statements are true or false: (v) Income from lease of land for grazing of cattle required for agricultural pursuits is agricultural income. Answer : (v) True, income received from lease of land for grazing of cattle required for agricultural pursuits is agricultural income Dec [2] (a) State, with reasons in brief, whether the following statements are true or false: (i) Once a person is a resident in a previous year, he shall be deemed to be resident for subsequent previous year also. SHORT NOTES Dec [3] (b) Write notes on the following: (ii) Assessee under section 2(7) (4 marks) An Assessee is a person by whom any tax or any other sum of money (for example interest, penalty, fine, etc) is payable under the Income Tax Laws and includes 1. A person in whose respect proceedings for determining income has commenced by the Income Tax Department. Thus, a person may become assessee even if no amount is payable by him under the Income Tax Act. 2. A Deemed assessee i.e. a person who himself is not an assessee but is treated as an assessee for the purposes of the Income tax Act. For example the trustee of a trust is a deemed assessee in respect of the trust. The income earned is the income of the trust but is assessed in the hands of the trustee as his income. 3. An assessee in default i.e. a person on whom certain obligations have been imposed under the Income Tax Act but who has failed to carry out those obligations. For example any person who employs another person has to deduct

7 [Chapter # 1] Introduction and Important Definitions O 3.7 income tax at source from the taxable salary of the employee and pay the tax deducted at source to the government within the prescribed time as income tax paid on behalf of the employee. In case the employer fails to carry out these obligations, he becomes an assessee in default Dec [6] (c) Write short notes on the following: (i) Assessment year (2 marks) DISTINGUISH BETWEEN June [3] (a) Distinguish between the following: (iv) 'Previous year' and ' assessment year'. (2 marks) Assessment Year Assessment year is the year in which return of Income for the F. Y. ended on 31st March is filed. Assessment year always starts from 1st April and ends on 31st March immediately following the end of the Financial Year The period of Assessment year is always 12 month commencing on the 1st day of April Previous Year Previous year is the year in which income is earned All previous year whether first or subsequent shall always end on 31st of March. However, start of first previous year shall depend upon the existence of source of Income. The period of previous year is of maximum of 12 months. It can exist even for a day if the source of income newly coming into existence, in the said financial year is on 31st March Dec [3] (a) Distinguish between the following: (i) Gross total income and total income. (4 marks) S.No. Gross Total Income Total Income 1. Gross total income means aggregate amount computed under five heads of income i.e. salary, house property, business and profession, capital gains and other sources Total Income means the taxable income arrives after allowing deductions under section 80C to 80U from the gross total income

8 3.8 O Solved Scanner CS Executive Programme M-I Paper 3 2. The Gross total income is more than or equal to total income 3. Rounding off provision does not apply to Gross total Income The tax is calculated on total income Total income shall be rounded off to the nearest multiple of Dec [4] (a) Distinguish between the following: (i) Gross total income and total income. (3 marks) Please refer Dec [3] (a)(i) on page no June [6] (b) Distinguish between the following: (ii) Scope of total income of resident and ordinary resident and non-resident. (3 marks) The following incomes from whatever source derived form part of total income in case of resident in India/ordinarily resident in India: (a) Any income which is received or is deemed to be received in India in the relevant previous year by or on behalf of such person; (b) Any income which accrues or arises or is deemed to accrue or arise in India during (c) the relevant previous year; Any income which accrues or arises outside India during the relevant previous year. The following incomes from whatever source derived from part of Total Income in case of Non-resident in India; (a) Any income which is received or is deemed to be received in India during the relevant previous year by or on behalf of such person; (b) Any income which accrues or arises or is deemed to accrue or arise to him in India during the relevant previous year Dec [6] (a) Distinguish between the following: (i) (ii) Person and assessee. Tax liability of resident individual and non-resident individual. (3 marks each) DESCRIPTIVE QUESTIONS Dec [2] (c) Under what circumstances, an individual will be considered nonresident for income-tax purposes and on what income he will be liable to be assessed? (5 marks)

9 [Chapter # 1] Introduction and Important Definitions O 3.9 CS Inter Gr. I DESCRIPTIVE QUESTIONS June [1] {C} (a) Income earned by a mutual concern from mutual activities is not taxable. Comment. (3 marks) Income earned by a mutual concern from mutual activities is not taxable. A mutual concern is liable to tax in respect of interest earned from investment in the banks. The general observation that mutual concern should not be treated as taxable income is, therefore, subject to three exceptions expressly provided in the Act. Firstly, income, accruing to a life or non-life mutual insurance concern is liable to tax. Secondly, income derived by a trade, profession or similar association from specific services performed for its members is chargeable to tax. Thirdly, income from insurance business carried on by a cooperative society is taxable in all cases and is to be computed in accordance with rules in the First Schedule Dec [1] {C} (b) "Every assessee is a person, but every person need not be an assessee." Critically examine the statement with reference to the relevant definitions under the provisions of the Income-tax Act, (3 marks) Every assessee is a person, but every person need not be an assessee. The statement is very true. A person is an assessee only if any tax or any other sum of money (for example interest, penalty, fine, etc) is payable under the Income Tax Laws and includes A person in whose respect proceedings for determining income has commenced by the Income Tax Department. Thus, a person may become assessee even if no amount is payable by him under the Income Tax Act. A Deemed assessee i.e. a person who himself is not an assessee but is treated as an assessee for the purposes of the Income tax Act. For example the trustee of a trust is a deemed assessee in respect of the trust. The income earned is the income of the trust but is assessed in the hands of the trustee as his income. An assessee in default i.e. a person on whom certain obligations have been imposed under the Income Tax Act but who has failed to carry out those obligations. For example any person who employes another person has to deduct income tax at source from the taxable salary of the employee and pay the tax deducted at source to the government within the prescribed time as income tax

10 3.10 O Solved Scanner CS Executive Programme M-I Paper 3 paid on behalf of the employee. In case the employer fails to carry out these obligations, he becomes an assessee in default. On the other hand an assessee will always be a person since person includes: 1. An individual 2. A Hindu Undivided Family (HUF) 3. A company 4. A Partnership Firm 5. An Association of Persons (AOP) 6. A Body of Individuals (BOI) 7. A Local Authority 8. Every artificial judicial person. For example, x, an individual has earned total income of 1,90,000 in the previous year. He is a person but not an assessee because his total income is less than the maximum exemption limit of 2,00,000/- and no tax or any other sum is due from him Dec [4] (c) "Income of the previous year is assessable as the income of immediate following financial year." State the exceptions to this rule. (3 marks) In the following circumstances the income is taxed in the same year it is earned. This is called the Accelerated assessment. 1. Shipping business of non resident (Section 172) 2. Assessment of a person leaving India (Section 174) 3. Assessment of AOP or BOI formed for a particular event or purpose (Section 174A) 4. Assessment of person likely to transfer property to avoid tax (Section 175) 5. Discontinued business (Section 176) June [3] (b) Briefly answer the following: (ii) Who is a non-resident? An individual/huf is considered non resident, when he/she does not satisfy any of the basic conditions as under. Basic Conditions: (a) He / she is in India in the previous year for a period of 182 days or more. (b) He / she is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year. A firm, AOP and a BOI will be non resident if control and management of its affairs is wholly situated outside India. A company will be considered to be a non resident in any previous year if control and management of its affairs are situated completely or partly outside India.

11 [Chapter # 1] Introduction and Important Definitions O June [4] Comment on the following statements: (iv) The incidence of income-tax depends upon the residential status of an assessee. (3 marks) Tax incidence of an assessee depends on his residential status. Section 5 provides for the scope of total income as the basis of liability to tax, which defines it in terms of the residential status of the assessee. Section 6 of the Income tax Act prescribes the test to be applied to determine the residential status of all tax payers for the purposes of income tax. For instance, whether an income, accrued to an individual outside India, is taxable in India depends upon the residential status of individual in India. Similarly, whether an income earned by a foreign national in India (or outside India) is taxable in India depends on the residential status of the individual, rather than on his citizenship. Therefore, the determination of the residential status of a person is very significant in order to find out his tax liability Dec [3] Comment on the correctness or otherwise of the following statements/propositions with reference to the relevant provisions of tax laws: (iv) The residential status of an assessee does not affect his tax liability. (5 marks) Incorrect Statement The scope of total income of all assesses is dependent upon the residential status of the assessee. The total income is different in case of a person resident in India and a person non-resident in India. Further, in case of an individual or HUF being not ordinarily resident in India, the meaning of total income shall be slightly different. Since the total income of an assessee varies according to his residential status in India, the incidence of tax shall also vary according to such residential status in India June [1] {C} (a) Attempt the following: (ii) Income earned by a mutual concern from mutual activities is not taxable. Comment. (3 marks) Income earned by a mutual concern from mutual activities is not taxable. A mutual concern is liable to tax in respect of interest earned from investment in the banks. The general observation that mutual concern should not be treated as taxable income is, therefore, subject to three exceptions expressly provided in the Act. Firstly, income, accruing to a life or non-life mutual insurance concern is liable to tax. Secondly, income derived by a trade, profession or similar association from specific services performed for its members is chargeable to tax. Thirdly, income from income insurance business carried on by a cooperative society is taxable in all cases and is to be computed in accordance with rules in the First Schedule.

12 3.12 O Solved Scanner CS Executive Programme M-I Paper 3 PRACTICAL QUESTIONS Dec [2] (c) Teji, a citizen of India, is an export manager of Arjun Overseas Ltd., an Indian company since 1st May, He has been regularly visiting USA for export promotion. He spent the following days in USA during the last five years: Previous year ended Number of days spent in USA days days days days days Determine his residential status for the assessment year assuming that prior to 1st May, 2009 he had never travelled abroad. (5 marks) Total stay in India Year No of days in India 2009! ! ! ! !14 70 During previous year his stay in India is 70 days and in the four preceding years = 412 days. Resident in India (Condition of 182 days for citizen not applicable as he has gone for employment abroad) 2012!2013 ==== 55 days (Non Resident) 2011!2012 ==== 96 days but more than 365 days in the 4 preceding previous years. Hence, resident 2010!2011 ==== 215 days (Resident) 2009!2010 ==== 46 days (Non Resident) Prior to 2008!2009 === Resident Since, Teji satisfies the first condition of being resident in at least 2 out of 10 previous years prior to relevant year and the 2nd condition of being in India for 730 days or more in the 7 preceding previous years therefore; he is resident and ordinarily resident in India.

13 [Chapter # 1] Introduction and Important Definitions O June [1] {C} (a) Armello, a German national, came to India for the first time during the year During the financial years , , , and , he was in India for 130 days, 75 days, 59 days, 100 days and 80 days respectively. Determine his residential status for the assessment year (3 marks) In this case, Armello does not stay for 182 days during the financial year Therefore, he fails to fulfill the first basic condition. Having stayed for more than 60 days during , he stayed only for 364 days during the preceding four financial years. Thus he fails to fulfill even the second basic condition. Consequently, his residential status for the Assessment Year relevant to the Financial Year is that of a non-resident. Repeatedly Asked Questions No. Question Frequency 1 Descriptive Question of:income earned by a mutual concern from mutual activities is not taxable. Comment June [1] {C} (a), 08 - June [1] {C} (a) (ii) 2 Times 2 Distinguish between on Gross total income and total income Dec [3] (a) (i), 11 - Dec [4] (a) (i) 2 Times